Musings on the market

With little changed on the charts I continue to believe we will see some form of correction, either through time or price. There is simply too much turmoil under the surface and new market leaders need time to emerge. Select sectors, steel, energy, solar and refiners are doing well whereas everything else isn’t doing fantastic. However I want to take this post to look at some broader macro issues.

First and foremost there has been another explosion in Japan at the Fukushima Dai-Ichi nuclear plant north of Tokyo. This is a massive tragedy and will likely haunt the country and the nuclear industry for some time . However I am looking to buy the blood here, as I believe nuclear names are being unduly punished. No one was under any illusions about the risks regarding nuclear power and I feel this selloff is fear driven. We could trade lower in the short term as more bad news comes out of Japan, but the underlying demand and argument behind nuclear power hasn’t changed. Its not like there is an alternative available in the midterm (I mean a viable alternative – I’m looking at you renewables).

This leads nicely into the next topic: oil. Oil traded down temporarily as people confused what is a temporary slump in demand (incidentally it isn’t even that as Japan scales up imports to make up for electricity generation lost) with what is really a supply side issue. Namely doubts over the ability of middle eastern countries to keep up oil exports, doubts over stated reserves, and worries about the regional instabilities. While it wasn’t front and center today, Saudi Arabia sent troops into Bahrain today which doesn’t bode well for regional stability or the price of crude coming down anytime soon. It is worth noting that the opposition in Bahrain – Shiite and shut out of government – has labeled this as a declaration of war and Saudi Arabia has about a 16% Shiite population. Refiners will continue to rip to the upside, if chasing that is your thing as 26%-33% of refining capacity is still down in Japan, reflecting 1.2% of world total. Please remember that just because the talking heads aren’t jumping up and down about your particular issue means that it is any less of an issue. I’m sure once Iran begins supporting Shiite rebellions – or rumors start – oil will rocket higher bringing everything else, except possibly precious metals, crashing downwards.

As if that isn’t confusing enough, there are reports (mentioned but not sourced here) that China is selling US treasuries (although this article http://bit.ly/fquSCH seems to dispute that). Regardless one can easily see here that China is no longer increasing its treasury holdings, even after the change to the ‘new’ data series from the ‘old’ which I’m sure equates to the same kind of statistical wizardry (integrity, or lack thereof) used to calculate CPI. Also notice where Japan places on that list. Finally, seeing Bill Gross of PIMCO sell treasuries tells me that he is either expecting a US default or haircut of some kind, which I find unlikely, or that yields will rise in the future representing the Fed finally losing control of the bond market. I cannot see this being good for either equities or anything held in US dollars.

As always, to talk my book and pound the table somewhat, I feel I need to give precious metals a shout out here. Those who got shook out on the sharp moves downwards, you are the fallen and forgotten of this raging bull which I expect to rip higher in short order. Be aware the market is manipulated and adjust accordingly. I will post some of my work for tomorrows trading session if I find the time later on.

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